Fresh drama at property developers including China Evergrande Group is jeopardising President Xi Jinping’s latest efforts to end the housing crisis.
Just as China enters a key holiday sales season, a raft of headlines are weighing on already-frail confidence in the property market. Evergrande said it has to revisit its debt restructuring plan and a unit missed a yuan bond payment. Former executives at the defaulted real estate giant have been detained, Caixin reported. Meanwhile, China Oceanwide Holdings Ltd said it is facing liquidation and Country Garden Holdings Co is still trying to avoid a potential default.
The news, which contrasts with a slew of recent government measures to prop up housing demand, has fuelled investor confusion over whether authorities have a unified plan to stabilise the market. It couldn’t come at worse time for Chinese developers counting on the upcoming Golden Week holiday period to spark a long-awaited revival in home sales.
“Any setback in the process will negatively affect the still very fragile market sentiment of almost all players in the sector and defeat the policy purpose,” said Zhi Wei Feng, a senior analyst at Loomis Sayles Investments Asia Pte.
A Bloomberg Intelligence gauge of Chinese developer shares fell 0.7% on Tuesday morning, a day after dropping the most this year as the crisis at Evergrande entered a new phase. The developer scrapped key creditor meetings and said it must rethink its debt overhaul plan, raising the risk of a liquidation of the nation’s most indebted builder.
On top of that, Caixin reported that Xia Haijun, an ex-chief executive officer of Evergrande, and Pan Darong, a former chief financial officer, have been detained by Chinese authorities.
The eight-day national holiday starting Friday is the centerpoint of the industry’s September-October busy season. The stakes are higher than ever this year, as the housing slowdown weighs on China’s economic recovery and developers that are struggling to refinance rely on cash from sales to meet debt obligations.
“Property sales this year have been very lacklustre, so for most developers accelerating transactions in the two months will be especially crucial,” said Zhang Hongwei, founder of Jingjian Consulting, which advises real estate companies. If sales aren’t good enough by October, local governments will roll out more stimulus, Zhang added.
An easing of mortgage restrictions at the end of August triggered a spurt of home sales in larger cities that is already losing momentum. That’s prompting speculation policy makers will need to do more to revive sentiment which has been hammered by worries over unfinished apartments, falling property values, high unemployment and dwindling incomes.
Some builders are already taking aggressive steps to entice homebuyers.
One developer in Guangdong is offering incentives to buyers of its Royal Skyrim apartments in Shenzhen to purchase additional properties elsewhere in the province. They can enjoy down payments of as low as 20% at its project in smaller Dongguan city nearby, according to agents.
Thirteen developers from Harbin, the capital of China’s northernmost province, went to the eastern city of Nanjing to promote their 21 projects earlier this month, hoping that buyers fond of travelling would consider them as holiday residences.
Local authorities are helping out, too. A city government in central Anhui province gave out 5,000 spending vouchers of as much as US$137 (RM642.26) each to homebuyers, according to an official announcement.
To seize the sales window, local authorities have been following each other to stimulate housing demand in recent weeks. Some have loosened rules banning non-residents from purchasing property there.
Guangzhou made such a move in some urban areas last week, marking one of the most significant steps taken in a tier-1 city. Beijing and Shanghai still restrict non-locals from buying property and place limits on how many units each household can own.
“Whether tier-1 cities will step up loosening depends on how much their housing markets recover,” said Chen Wenjing, associate research director at China Index Holdings. “The Guangzhou move signals that it’s not impossible anymore.”
Potential policies include making more people eligible for purchases in suburban areas, where sales are usually more lacklustre. Homebuyers are also watching whether Beijing, Shanghai and Shenzhen will reduce their minimum mortgage rates for first homes to lower floors guided by the central bank earlier this month.
Still, there are entrenched barriers to a recovery that such measures can’t easily overcome. As well as the tough job market, China’s ageing population and an oversupply of housing limit the upside for investing in real estate.
Former People’s Bank of China policy maker Li Daokui said a recovery may take as long as a year and Beijing should do more to encourage lending to cash-strapped developers.
Officials are treading a fine line on how far to push stimulus. While a persistent real estate slump poses risks to the government’s growth target of 5% this year, it wants to reduce the economy’s reliance on a leverage-driven property market in the long run.
For now, the expectation that home values will keep falling is among the biggest factors deterring buyers. Home prices dropped the most in 10 months in August, led by declines in smaller cities.
“Expectations on housing prices have gradually stabilised, but the outlook on most tier-2 cities and smaller cities is still negative,” said Chen at China Index. “For most cities in China, the home market needs to take more time to recover.”
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
